Budget 2024 Gives Capital Allocation For Oil Firms And Buffer For LNG Under-Recoveries A Miss

Allocation for the Ministry of Petroleum and Natural Gas in Budget 2024 does not include reimbursements for losses that state-owned oil marketing companies incur on the sale of liquified natural gas.

Furthermore, no budgetary allocation has been made for capital infusions into oil market companies in the Union Budget presented on Tuesday.

These factors are negative for oil companies like Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp.

Distributing and marketing petroleum products in India, including liquefied petroleum gas or cooking gas, is the responsibility of Indian Oil Corp., BPCL, and HPCL—popularly known as Oil Marketing Companies, or OMCs. Budget 2024 has no provisions to cover the losses incurred by these companies when they sell LPG at below-market prices.

OMCs are expected to continue absorbing these losses, referred to as under-recoveries. The difference between the cost of acquiring LPG and its selling price to consumers is known as under-recoveries. While the government subsidises LPG to make it more affordable for the common man, the OMCs have to bear the difference between the subsidised price and the market price.

The lack of allocation is negative for oil marketing firms, as evidenced by Bharat Petroleum's first-quarter results update, which revealed that the company saw a loss of Rs 2,300 crore during the quarter on LPG sales, with an aggregate unrecovered loss of Rs 2,000 crore as of June 2024.

In the 2023 budget, the government had set aside Rs 30,000 crore for capital support for oil marketing companies. Despite this allocation, no capital raising materialised in the fiscal.

Therefore, the absence of budgetary support in fiscal 2025 suggests that the government may not be considering capital infusion.